Peter Thiel’s Zero to One Approach for Innovation
If you’ve ever had a formal business education, then you’ll recognise the common, ‘best practice’, phrases that get thrown around when it comes to assessing the viability of a new product or idea.
These phrases range from “conducting an industry analysis”, to “analysing the competitiveness and opportunities within markets or customer segments”. The underlying theme is that nearly all of these strategic frameworks are focused around assessing the current state; total market size, existing competition within the market, and projecting future growth of the market.
These textbook, market analysis principles are very effective for assessing decisions with existing businesses in established markets, yet they can be extremely misleading when assessing products and innovation that may not fit into any existing category.
This common fallacy leads many of us to look for a neat category to assess the idea against, rather than opening our minds to the possibility of a new category being created from scratch. Now, we stand at a point where this thinking has made its way into many start up and innovation environments, which is restricting the potential for great ideas.
This mental model identifies how to approach innovation thinking for new ideas and businesses. We will unpack how to think about ideas and products that create categories, rather than find categories that already exist.
New categories are always being created
It’s easy to forget that the internet didn’t exist over 30 years ago. This entire market, which now has a range of sub markets such as eCommerce and software as a service (SaaS), has spawned millions of jobs since its inception, yet when it first came to be, it would have been unlikely to pass viability test using classic market analysis. Peter Thiel, an early investor in Facebook, and co-founder of PayPal calls this the idea of going from Zero to One, in fact, he wrote a whole book about it.
Understanding Zero to One Thinking
Taking an idea from Zero to One is the concept of building a product that establishes a new market. This means the product or idea is completely new, and cannot be assessed against any current alternatives that are in the market. You are literally taking an idea that does not exist and are making it from scratch. In contrast, iteration of an idea may be a new restaurant idea, which may take the established restaurant market from 78 to 79, it’s an improvement, but it’s simply a development of an existing industry.
Going from Zero to One is commonly done by testing hypothesis in the form of building MVPs and then constantly iterating until the market positively responds. Thiel specifically points out that not only should we be more open to new ideas that don’t fit into an existing market, but that the pay off from building a zero to one idea is access to monopolistic power, even if it’s only temporary.
Key takeouts for Zero to One thinking:
- Classic market analysis can kill innovation: Classic market analysis trains us to assess decisions based on the available information in front of us, which means we’re blind to the idea that new markets can be created and pushed toward taking a slice of an existing market. This way of thinking is very well suited to making decisions in established and mature business environments, yet, the same thinking is often also applied to start-up environments and new ideas, meaning its killing innovation and potentially huge ideas.
- New ideas are always on the horizon: New markets are always being developed, we just cant think of any because they don’t exist yet. Don’t count out an idea that doesn’t exist, humans haven’t (and never will) think of everything that could ever exist.
- Build and test, don’t analyse and decide: When we’re faced with a new idea or innovative product, embrace the idea of Zero to One thinking and test its validity in market. The market will respond to whatever you produce, so rather than spending time deliberating what may or may not work, build and see what happens when you put a product out there. Then iterate on the idea to improve it even further.
Originally published at https://www.sampaxinos.com on February 21, 2022.